Capital Markets

A GOOD START TO A YEAR OF EXPECTED ECONOMIC RECOVERY

• With the economy on the mend with positive news from the vaccine distribution, controlled easing of travel restrictions as well as the return of workers to their workplaces, investment sales activity picked up in the first quarter of the year, with the residential sector leading the string of deals. Investment deals amounted to some S$3.8 billion in Q1 2021, representing an uptick of 26.7% year-on-year (y-o-y) from S$3.0 billion in Q1 2020.

• The residential sector retained momentum with some S$1.7 billion of investment deals at the start of 2021. The Good Class Bungalow (GCB) segment continued to draw strong interest due to its rarified and coveted status, as well as the entry of more family offices setting up in Singapore. The sale of a GCB at Nassim Road for S$128.8 million or S$4,005 per square foot (psf) on land in late March broke all previous sales records from this asset class. At the same time, developers were beginning to replenish their land banks through partnerships.

Return of institutional capital and increasing industrial investment deals

Institutional investors and real estate funds sped up their hunt for industrial assets. In fact, among the aforesaid HKD1.9 billion transactions, all were acquired by funds or institutional investors. In January 2021, Kailong, a fund manager active in Greater China, acquired Hang Fat Industrial Building near Lai Chi Kok station. This property is expected to be redeveloped into a new industrial office building3 . Another pan-Asian fund manager, SilkRoad, also purchased Smile Centre near Fanling station, which is currently leased for logistics use. Meanwhile, Goodman purchased ground floor to fourth floor of Seapower Industrial Centre in Kwun Tong, with cold storage facilities, for HKD570 million (USD 73.5 million).

Looking into 2021, we believe institutional capital and funds will become more active again, given the pent-up acquisition requirements that have piled up over the last 18 months due to the market uncertainties, which now seem to be easing. Compared to the retail and office sector, industrial properties demonstrated a high level of resilience and stability in terms of rents and capital values. Meanwhile, the industrial Revitalisation Scheme 2.0 also presented investors with redevelopment opportunities, and some investors are eyeing the relaxed plot ratio restrictions to improve the return on their investments with higher floor area ratios.